Regulation 11 – Service contracts awarded on the basis of an exclusive right

Commentary

Regulation 11 transposes Article 11 of Directive 2014/24/EU and creates the first carve-out for (pseudo) public-public cooperation, with more to follow under Regulation 12 PCR2015.

Regulation 11 excludes from the rules of Part 2 PCR2015 ‘public service contracts awarded by a contracting authority to another contracting authority on the basis of an exclusive right which the latter enjoys pursuant to a law, regulation or published administrative provision which is compatible with TFEU.’ This is an instance of quasi self-supply, which has been regulated in Article 18 of Directive 2004/18/EC and is now maintained in Article 11 of Directive 2014/24/EU. The reference to compatibility with the TFEU is primarily to Art 106 and public undertakings although it is unclear if the TFEU mention was needed as this is probably another tautologic reference to the Treaty. In other words, its absence would not change the need for compliance with the TFEU. In consequence, any exclusive right which violates the TFEU (say for violation of EU principles) will not trigger the application of this exclusion. As usual, the problem will always be transparency and accountability as it is unlikely interested parties will be aware of i) the right; ii) that a contract exists; iii) the right violates the TFEU in any count.

Association of contracting authorities’ gets lost in translation

While the rules contained in Article 11 Directive 2014/24/EU and Regulation 11 PCR2015 are fundamentally the same, the latter deviates from the EU provision as it does not include in its scope public services contracts awarded to ‘an association of contracting authorities.’ Consequently, Regulation 11 PCR2015 appears to reduce the flexibility of public-public cooperation rules in comparison with the Directive. This may be an issue of incorrect transposition of Directive 2014/24/EU, which would be solved in practice by the direct effect of the missing part of Article 11.

We looked into the PCR2015 Explanatory Memorandum, but it offers no justification for such a restriction of the scope of application of this exclusion. It may be though, that multiple contracting authorities can create a new body such as a centralized purchasing body which would not be an association but still fall within the scope of Directive 2014/24/EU.

Relationship with negotiated procedure

The purpose of the exclusion in Regulation 11 PCR2015 may seem superficial and unnecessary because both Article 32(2)(b)(iii) of Directive 2014/24/EU and Regulation 32(2)(b)(iii) PCR2015 allow for the use of a negotiated procedure without prior publication where the works, supplies or services can be supplied only by a particular economic operator protected by an exclusive right, including intellectual property rights. This functionally equivalent to an exclusion from compliance with the rules, except for some very limited transparency obligations. However, the specific exclusion in Regulation 11 may not be considered (completely) superficial or unnecessary if two details are taken into consideration.

Firstly, a literal interpretation (or a natural reading) of Regulation/Article 32(2)(b)(iii) could seem to exclude ‘contracting authorities (or associations of contracting authorities’ from their scope of application if they were not considered ‘economic operators’. However, once this is checked against the definitions in Regulation/Article 2(1), it is clear that ‘contracting authorities (or associations of contracting authorities’ would be covered, as economic operators are defined as ‘any natural or legal person or public entity or group of such persons and/or entities, including any temporary association of undertakings, which offers the execution of works and/or a work, the supply of products or the provision of services on the market‘. Hence, from this perspective, the specific exclusion in Regulation 11 PCR2015 seems unnecessary.

Secondly, however, it is worth stressing that the special rule under Regulation/Article 32(2)(b)(iii) ‘shall only apply when no reasonable alternative or substitute exists and the absence of competition is not the result of an artificial narrowing down of the parameters of the procurement.‘ Hence, the specific (quasi) public-public cooperation exception in Regulation/Article 11 seems to be oriented at suppressing the requirement for an assessment of availability of alternative or substitute works, products or services that could be procured. Under this light, this exception seems to now acquire a specific purpose.

In our view, however, if the goal of Regulation/Article 11 is to deactivate the additional requirements of absence of alternative/substitute supplies or artificial narrowing down of the procurement, then these rules are bound to fail and become ineffective. Indeed, it should be stressed here that Regulation/Article 18 include the principle of competition amongst the general principles of procurement and, as a general requirement, impose an obligation for contracting authorities to design the procurement in a way that does not artificially narrow competition. Consequently, a systematic interpretation of Regulation/Article 11 does not allow for an interpretation that is functionally any different than Regulation/Article 32(2)(b)(iii). Thus, ultimately, Regulation/Article 11 is an unnecessary rule and could have been avoided in view of the (proper) public-public and in-house provision rules in Directive 2014/24/EU and PCR2015.

Last modified: July 4, 2016 by Pedro Telles

11.  This Part does not apply to public service contracts awarded by a contracting authority to another contracting authority on the basis of an exclusive right which the latter enjoys pursuant to a law, regulation or published administrative provision which is compatible with TFEU.